The beginning of a new globalization – Branko Milanovic

This time, writes Branko Milanovic, it is labor – not capital – that will be globalized.

Video conferencing in Madhya Pradesh (Neeraz Chaturvedi /

Globalization as we knew it – until the pandemic – was asymmetrical. Capital was able to move almost seamlessly, while workers were generally herded into the countries where they lived.

This increased mobility of capital, compared to the post-war decades before this phase of globalization, was made possible by improvements in banking technology and much more flexible rules (“open capital accounts”) on the transfer of capital abroad. But perhaps most important was the hope that one could invest in distant destinations without significant risk that the assets would be expropriated or nationalized.

The new globalization that is taking shape also seems asymmetrical, but exactly the opposite of the old one. Work will become increasingly global, while capital movements will be fragmented. How did it happen?

Remote work

The globalization of work will be done through remote work. While the necessary technology existed before the pandemic, Covid-19 enabled a decisive shift towards its more frequent use. Companies and workers found that jobs that were supposed to require a physical presence could be done from home or, for that matter, almost anywhere in the world.


This has led to many not only starting to work from home, but moving to different and cheaper locations, while continuing to be paid at old rates – paying, for example, much lower rent in San Antonio, Texas, while maintaining a salary in New York. This is the first time in history that such a decoupling between jobs and the physical presence of workers could be put in place.

However, the trend should not stop at national borders. It can, and has, extended further: there is simply no reason for a company to continue hiring American labor at (say) $50 or $100 an hour whereas the same work can be done in India or elsewhere for 10 or 20 dollars. Indeed, the new (Indian) worker may be better off with a much lower wage than the American worker with his theoretically higher old wage, simply because of lower prices in India.

Through this “arbitrage” of divergent prices, the American capitalist class wins by paying lower dollar wages, while the international working class wins by improving their standard of living. It’s a win-win situation, except, of course, for labor in rich countries.

Geopolitical reasons

The globalization of capital will, on the contrary, be reversed. The reasons here are geopolitical, although to some extent also fiscal, as the imposition of an overall minimum corporate tax of 15% makes tax avoidance through selective accounting less attractive.

Geopolitics is about increasing tensions and conflicts between the United States, Russia and China. Whatever the outcome of the standoff over Ukraine (totally unpredictable at the time of writing), Russia will be subject, whether next week or next year, to full financial and trade sanctions. . This would essentially cut off part of the global economy from financial globalization.

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Admittedly, Russia is not a big chunk: its gross domestic product represents around 3% of world GDP (at purchasing power parities), its exports just over 2% of the world total. But the message is unambiguous, especially when considered in light of similar US sanctions imposed on Iran, Venezuela, Cuba, Myanmar, Nicaragua, etc. – more than 20 countries are currently targeted in one way or another.

As this list indicates, these sanctions are extremely difficult to reverse. No one can buy a Cuban cigar in the United States. The embargo is now over 60 years old and, despite a modest effort under President Barack Obama, nothing has changed. Indeed, the administration of Donald Trump reversed some previous decisions and imposed a series of new sanctions. It’s the same story when it comes to Venezuela, Syria and Iran.

Sticky penalties

The rigidity of US sanctions can best be illustrated by the Jackson-Vanik Amendment, which targeted Soviet trade in response to the inability of Soviet Jews to emigrate to Israel. The amendment was introduced in 1974 when emigration from the Soviet Union was (to put it mildly) very difficult. But after liberalization under the reformist leadership of Mikhail Gorbachev in the 1980s, followed by the breakup of the Soviet Union, an estimated 2-3 million Jews left the USSR or later the Russian Federation for Israel. or other countries.

However, the amendment remained inscribed in the texts of the law, its non-application depending on the annual verification by the American administration that Russia was not in violation. It is hard to imagine a more absurd situation. Eventually, Jackson-Vanik was overturned, but only to be replaced by the Magnitsky Act, whose goals are the same, even though the justification (the death in prison of an eponymous tax lawyer, investigating a massive fraud allegedly involving Russian tax officials) was different.

The recent seizure by the United States of Afghan government assets – half of them to compensate the families of the victims of the September 11 attacks – is indicative of this trend. So does speculation that in the next round of anti-Russian sanctions, the assets of oligarchs reputedly close to President Vladimir Putin will be frozen or expropriated. They signal to any company originating from a country that might, at some point, be in Washington’s crosshairs that it should think twice about keeping assets in the United States.

This applies with particular force to China. By any sane extrapolation, if China-US relations were to deteriorate again, the assets of Chinese state-owned enterprises, as well as those of individuals “close” to the Chinese Communist Party (which could be anyone), would be highly exposed. China holds over $1 trillion in US government bonds. They could become worthless pieces of paper.

The same fate could befall (say) companies in Nigeria (given its problematic relationship between democracy and the military) or Ethiopia (sanctions are already being imposed due to the civil war with the Tigrayan self-governing forces). The list of possible reasons for freezing assets is endless: civil wars, drug trafficking, lax banking regulations, different political systems, human rights violations, alleged genocide…

Dramatic politicization

If enough capitalists come to the same conclusion about the insecurity of their wealth, they will try to “park” it in places where political decisions are less likely to prevail. It could mean Singapore, Bombay or other places in Asia. One could imagine the dilemma of wealthy Hong Kong businessmen, whose assets could be expropriated by the Chinese authorities or, if they succeeded in transferring their wealth to the United States, by the American powers in place, expropriated because weren’t close enough to the CCP. or… too close.

The dramatic politicization of financial coercion will inevitably lead to a fragmentation of capital flows. While in the past oligarchs have fled to the US and UK, apparently correctly thinking that whatever their wealth was built up would be welcome in the West, now they can flee. elsewhere – and in the process unwittingly create a more multipolar financial situation. world.

This is a joint publication of Social Europe and IPS-Journal

Branko Milanovic is a Serbian-American economist. A specialist in development and inequality, he is a visiting presidential professor at the Graduate Center of the City University of New York and a senior researcher affiliated with the Luxembourg Income Study. He was previously chief economist in the research department of the World Bank.

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